Summary: Commercial Real Estate Analysis and Investment

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Ch.1. Real estate space and asset markets.
Space market ( the market for the usage of (or right to use) real property (land and built space); also referred to as the real estate usage market or rental market. Demand side: individuals, households and firms that want to use space for either consumption of production purposes. Supply side: real estate owners who rent space to tenants. 1. Segmentation of space markets.
Both the demand and supply side are location and type specific. Therefore, real estate markets are highly segmented ( Space markets are local rather than national, and specialized around building usage categories.
Primary geographic units are metropolitan areas (or metropolitan statistical areas, MSAs)
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The cap rate is determined by capital investment supply & demand in the asset market and is based on 3 major factors: 1. Opportunity cost of capital => increase demand, increase in the price investors are willing to pay for the property, this results in a decrease of the cap rate. 2. Growth expectations 3. Risk

Asset market investors are seeking future cash flows – financial rather than physical assets. Real estate asset markets are much more integrated than real estate space markets.

Ch.2 Real estate system.
The real estate development industry is the engine of entrepreneurial activity that assembles and applies the financial and physical resources to construct new built space.
It is only the demand for new built space that supports the development industry.

Three major components of the real estate system: - The space market - The asset market - The development industry

The real estate system (as depicted below) is, in principle, forward-looking to varying degrees in several aspects of the system.

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The above picture gives a visual overview of the Real Estate System and includes the major elements and linkages among the three major components.

Some explanations:
Both the supply and demand sides of the real estate asset market consist of investors; all of these investors are operating within
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